Rand Capital Corporation

Greetings. Welcome to the Rand Capital Corporation Second Quarter 2021 Financial Results Conference Call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during a conference, please press star zero on your telephone keypad. Please note this conference is being recorded. I will now turn the conference over to your host, Deborah Pawlowski, Investor Relations for Rand Capital. You may begin.

Thank you, Jamali, and good afternoon, everyone. We appreciate your interest in Ram Capital and for joining us today for our second quarter 2021 financial results conference call. Here with me today are Pete Grum, our Chief Executive Officer, and Dan Penberthy, our Executive Vice President and Chief Financial Officer. You should have a copy of the release that crossed the wire this morning, as well as the slides that will accompany our conversation today. If not, they are available on our website at randcapital.com. If you are following along on the slide deck and would turn to slide two, I would like to point out some important information. As you are likely aware, we may make some forward-looking statements during this presentation and during the question and answer session. These statements apply to future events that are subject to risks and uncertainties, as well as other factors that could cause actual results to differ from where we are today. You can find a summary of these risks and uncertainties and other factors in the earnings release, as well as in other documents filed by the company with Securities and Exchange Commission. These documents can be found on our website or at sec.gov. During today's call, we will also discuss some non-GAAP financial measures. We believe that these will be useful in evaluating our performance. You should not consider the presentation of this additional information in isolation or as a substitute for results in accordance with GAAP. We have provided reconciliations of non-GAAP measures with comparable GAAP measures in the tables that accompany today's release and in the slides. So, with that, if you would turn to slide three, I will hand the discussion over to Pete to begin. Pete?

Thank you, Deb. Good afternoon, everyone. We continue to execute our strategy as we focus on evolving our portfolio from equity investments to income-producing investments. The goal of driving investment income and ultimately delivering higher cash distributions. For the quarter, our total investment income grew 20% to $811,000. That asset value per share of $22.51 was up 7% and 26% from the sequential first quarter and year-end period, respectively. The sequential increase largely reflects unrealized appreciation of our investment in open exchange following their equity financing by new non-strategic outside investors. The change from year end reflects the increase in fair value of our investments in ACV auctions, which completed their IPO at the end of March. During the quarter, we sold our investment in GiveGap, a software company that we've owned since 2015. Our equity investment of $616,000 netted us a recognized gain of $1.8 million. This is consistent with our strategy of transforming our portfolio from equity to debt. During the quarter, we accrued $1.1 million in non-cash expenses related to capital gains incentive fees, which were primarily the result of realized gains from the sale of GiveGab. and the increase in unrealized appreciation, mostly related to open exchange. The accrual will be adjusted on a quarterly basis. As a result, we reported a gap net investment loss of 31 cents per share. Absent this expense, adjusted net investment income was 10 cents per share. We announced and paid our regular quarterly dividend distribution of 10 cents per share during the second quarter. And at the end of July, we announced our third quarter dividend distribution, also at 10 cents per share. So far this year, we have declared $1.63 per share in dividends, including the $1.33 per share that was declared at the end of last year, but was paid in 2021. We turn to slide four. We can discuss the progress we have made regarding the evolution of our investment portfolio to support our strategy. The 14% increase in fair value shown here reflects the impact of open exchange, which now has a fair value of $5.6 million, an increase of $4.9 million during the year. The fair value of all of our investments increased by $7.5 million. At quarter end, our portfolio was comprised of approximately 55 percent equity investments, 36 in fixed-rate debt investments, and 9 percent in dividend-paying publicly traded BDCs. During the quarter, we made $4.6 million in new and follow-on investments and received $2.4 million from the one exit we discussed and the other loan repayments. These transactions are highlighted on slide five. The largest investment during the quarter was for ITA Inc. It totaled $3.9 million. $3.4 million consisted of 12% term notes and $500,000 was in equity. ITA manufactures a wide, broad variety of window covering components and finished wood treatments, including wood, full wood, and fabric shades, shutters, and blinds for residential and commercial applications. The follow-on investment was provided to Madison Avenue Holdings LLC, a high-end salon suite business that provides customized, fully furnished salon and spa studio space for lease and prime locations for individual stylists, barbers, massage therapists, nail technicians, and estheticians. This works as well as for other individualized services, such as acupuncture. Our 667,000 follow-on investors consisted of a 14% promissory note. In total, we now have $1.8 million invested in Madison at the end of the quarter. The charts on slide six illustrate the diversity of our portfolio and the change in industry mix since 2020 year end. With the investment we recently made, the impact of the investments and fair value changes, software and healthcare saw notable changes, while most of the other industries were within a point or so during that period. We like the diversity of our portfolio and believe it reduces our exposure to market risk. Slide seven lists our top five portfolio companies at quarter end. There are two new companies in the list. Open Exchange, which saw a measurable increase in its fair value, and ITA with a new investment. ACB's fair value came down about $1.7 million during the quarter, which followed the significant jump during the first quarter given their IPO. Their valuation in our portfolio represents 24% of net assets. Our ACB holdings consist of 147,645 Class A common stock and 442,935 of Class B common stock. The Class A shares are freely tradable while the Class B are still restricted and non-tradable through the September 20th, 2021. We have discounted our valuation due to these current restrictions. As a reminder, Any proceeds for us above our $163,000 initial investment will be a capital gain and traded as such as it relates to any dividend or distribution. With that, I'm going to turn it over to Dan to review our financials in greater depth.